Standards

The LGD and EAD parameters are most demanding in terms of multiple and precise data on the obligor, the loan and surrounding circumstances. Defining the data-fields has required many interactions between the Member-banks, the Methodology Committee and the Data Agent. This work has been consigned in 5 documents described here below. At the current stage, PECDC offers a mature structure for LGD/EAD pooling, which the Member-banks can and do adopt in their internal databases. PECDC is actually setting up standards: these are extensively elaborated in a suite of supporting documents.

Of course, this implies that, going forward, changes in the template will be limited and announced well in advance in order to give Member-banks the possibility to adjust their systems accordingly.

Supporting Documents Suite:

PECDC EAD & LGD Data Dictionary

This is the initial document “charted” by the banks and the Data Agent together, translating common data definitions into template boxes, for EAD/LGD pooling (document).

PECDC EAD & LGD Definitions & Descriptions 11.0

This document is the most recent elaboration (V 11, in September 2010) of the data fields for EAD and LGD data. It is the result of the permanent co-operation organised by the MethCom to transform the dialogue into clear words and facts. It gives the detail of the possible answers (the lookup tables) for each criteria, with short comments and references to the business rules (see DMUG). Each data-field is marked whether it is optional or mandatory. Gradually each data field will become mandatory (if relevant).

PECDC EAD & LGD Input Structure 11.0

It is fundamental to enable a new Member-bank to organize its internal collection process in accordance with the specifications of PECDC. The Input Structure is a more technical document associating the data definitions and data-fields, distributed in 8 tables (chapters), 118 fields (criteria) and 37 lookup tables (menus), in an Excel format.

For each reported defaulted loan, the tables can be repeated, when relevant, to reflect the evolution through time, allowing 5 different “snapshots” at “Origination”, “one year prior to Default”, “date of the Default”, “post Default” and, finally, at “Resolution”. The table Nr 8, “the Loan Transaction table”- is like a statement of account reflecting the entries in and out (recovery cash flow, write-off, etc) in-between the transfer of the loan in default and its resolution.

PECDC EAD & LGD Data Model User Guide July 2010

Bank loans know many appearances which could be recorded in many ways in the data base. For sake of consistency and clearness, additional guidance is provided to the Member-banks how to interpret certain aspects of a defaulted loan and how to record them.

For instance it explains how to treat a loan being a contingent liability at the time of default (i.e. a bank guarantee) and where a claim is paid out during the workout process. In this example it is important to know what to label as a cash flow and what as a drawn position at the moment of default in order to have a proper calculation of the LGD.

The Business Rules reflect the consensus obtained in the Methodology Committee on various Data Issues, as and when they come. The DMUG records them all, thereby allowing each member to know when a new business rule is applied in the data template and what the status is of outstanding issues.

PECDC EAD & LGD Data Validation Specifications 11.0

When data is submitted by the Member-bank to the Data Agent, each defaulted facility is subjected to a set of 268 validation rules. Based on these rules – set by the Methodology Committee - the Data Agent checks the data in terms of presence, consistency, integrity and alignment with the database structure. If the rules are not met, the files will be rejected with an explanation enabling the Member-bank to do the necessary adjustments. All these rules are listed in the PECDC EAD & LGD Data Validation Specifications document.